Income Taxes

12 Months Ended

Dec. 31, 2019

The following are the domestic and foreign components of the Company’s income (loss) before income taxes for the years ended December 31, 2019 and 2018:



	Year Ended
	December 31, 2019			December 31, 2018
	(in thousands)
Domestic	$	(28,063	)	$	(62,292	)
International	1,073			827
Loss before income taxes	$	(26,990	)	$	(61,465	)

The following are the components of the provision (benefit) for income taxes for the years ended December 31, 2019 and 2018:



	Year Ended
	December 31, 2019			December 31, 2018
	(in thousands)
Current:
Federal	$	(153	)	$	(23	)
State	28			41
Foreign	281			388
Total current provision	156			406
Deferred:
Federal	(762		)	—
State	(174		)	2
Foreign	(732		)	(51		)
Total deferred benefit	(1,668		)	(49		)
Total provision (benefit) for income taxes	$	(1,512	)	$	357

The Company recorded an income tax benefit of $1.5 million for the year ended December 31, 2019 and an income tax expense of $0.4 million for the year ended December 31, 2018. The tax benefit for the year ended December 31, 2019 is the result of a deferred tax liability associated with the RTKio acquisition, the release of a foreign valuation allowance resulting from a change to a cost-plus arrangement for a foreign subsidiary, the domestic valuation allowance and the tax liability associated with foreign subsidiaries.

Set forth below is a reconciliation of the components that caused the Company’s provision (benefit) for income taxes to differ from amounts computed by applying the U.S. Federal statutory rate of 21% for the years ended December 31, 2019 and 2018:



	Year Ended
	December 31, 2019		December 31, 2018
U.S. federal statutory income tax rate	21.0	%	21.0	%
State income taxes, net of federal benefit	(0.1	)%	(0.1	)%
Foreign income (loss) at other than U.S. rates	(4.3	)%	—	%
Stock-based compensation expense	3.5	%	(5.3	)%
Meals and entertainment	(0.9	)%	(0.4	)%
Debt cancellation	—	%	(1.2	)%
Other permanent items	(1.2	)%	(0.5	)%
Change in valuation allowance	(7.5	)%	(14.1	)%
Sec 162(m) officers compensation	(6.3	)%	—	%
Provision to return adjustments	1.4	%	—	%
Effective income tax rate	5.6	%	(0.6	)%

Set forth below are the tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities as of December 31, 2019 and 2018:



	December 31, 2019			December 31, 2018
	(in thousands)
Deferred Tax Assets:
Accrued liabilities	$	1,396		$	916
Stock-based compensation	3,666			2,623
Net operating loss carryovers	75,853			76,098
Tax credit carryovers	13,055			13,206
Other	1,537			1,053
Total deferred tax assets	95,507			93,896
Less valuation allowance	(93,611		)	(90,959		)
Deferred tax assets, net of valuation allowance	1,896			2,937
Deferred Tax Liabilities:
Fixed assets	(570		)	(2,352		)
Intangible assets	(298		)	(152		)
Total deferred tax liabilities	(868		)	(2,504		)
Net deferred tax assets (liability)	$	1,028		$	433

The change in valuation allowance for the years ended December 31, 2019 and 2018 was $2.7 million and $9.2 million, respectively.

At December 31, 2019, the Company had U.S. federal net operating loss carryforwards, or NOLs, of approximately $288.8 million, which will begin to expire in 2027. At December 31, 2019, the Company had state NOLs of approximately $176.2 million, which will begin to expire in 2027. At December 31, 2019, the Company had foreign NOLs of approximately $18.0 million, which will begin to expire in 2026. At December 31, 2019, the Company had federal research and development tax credit carryforwards, or credit carryforwards, of approximately $10.2 million, which will begin to expire in 2027. At December 31, 2019, the Company had state research and development tax credits of approximately $8.0 million, which carry forward indefinitely. No amounts for any federal or state research and development tax credits for the year ended December 31, 2018 or December 31, 2019 are included herein.

Utilization of certain NOLs and credit carryforwards may be subject to an annual limitation due to ownership change limitations set forth in the Internal Revenue Code of 1986, as amended, or the Code, and comparable state income tax laws. Any future annual limitation may result in the expiration of NOLs and credit carryforwards before utilization. A prior ownership change and certain acquisitions resulted in the Company having NOLs subject to insignificant annual limitations.

Additionally, for tax years beginning after December 31, 2017, the Tax Cuts and Jobs Act limits the NOL deduction to 80% of taxable income, repeals carryback of all NOLs arising in a tax year ending after 2017, and permits indefinite carryforward for all such NOLs. NOL’s arising in a tax year ending in or before 2017 can offset 100% of taxable income, are available for carryback, and expire 20 years after they arise.

At December 31, 2019, unremitted earnings of the subsidiaries outside of the United States were approximately $8.6 million, on which the Company previously recorded a transition tax of $0.6 million. The Company’s intention is to indefinitely reinvest these earnings outside the United States. Upon distribution of those earnings in the form of a dividend or otherwise, the Company would be subject to withholding taxes payable to various foreign countries and, potentially, various state taxes. The amounts of such tax liabilities that might be payable upon actual repatriation of foreign earnings, after consideration of corresponding foreign tax credits, are not material.

The following table summarizes the activity related to the unrecognized tax benefits (in thousands):



	Amount
	(in thousands)
Balance as of December 31, 2017	$	5,646
Increases related to 2018 tax positions	—
Decreases related to prior year tax positions	(929		)
Balance as of December 31, 2018	4,717
Increases related to current year tax positions	—
Decreases related to current year tax positions	—
Increases related to prior year tax positions	3
Balance as of December 31, 2019	4,720

Interest and penalties related to the Company’s unrecognized tax benefits accrued at December 31, 2019 and 2018 were not material.

Due to the net operating loss carryforwards, the Company's United States federal and a majority of its state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception. For Canada, Japan, the Netherlands, and the United Kingdom, all tax years remain open for examination by the local country tax authorities, for France only 2017 forward are open for examination, for Singapore 2016 and forward are open for examination, and for Australia, Brazil, and Germany, tax years 2015 and forward are open for examination.

The Company does not expect its uncertain income tax positions to have a material impact on its consolidated financial statements within the next twelve months.